Agenda Index City of Vancouver

POLICY REPORT
FINANCE

TO:

Vancouver City Council

FROM:

General Manager Corporate Services
General Manager Engineering Services

SUBJECT:

Implementation of the Proposed Sewer Utility

 

RECOMMENDATION

GENERAL MANAGER COMMENTS

Implementation of a user fee based sewer utility has been supported by Council since 1994 as a means of removing sewer costs from the property tax levy and of ensuring sewer users understand the costs of the system and can have some influence over those costs. The phased implementation of sanitary sewer user fees recommended in this report is a good first step toward achieving these goals. While it would have been preferable to implement both the consumption and lot size charges together, the latter component will require additional work to deal with administrative and billing issues.

The General Manager of Engineering Service and General Manager of Corporate Services RECOMMEND approval of A, B, C, D and E.

COUNCIL POLICY

On September 12, 1995, Council approved the creation of a Solid Waste Utility to be implemented on January 1, 1996 and a Sewer Utility to be implemented the following year.

On February 8, 1996 Council deferred the implementation of the Solid Waste Utility until the City was able to secure the appropriate amendments to the Vancouver Charter from the Provincial Government that were required to enforce the collection of user fees. The amendments to the Vancouver Charter were passed by the Legislature and given Royal Assent on July 28, 1997.

On October 7, 1997 Council approved the implementation of the Solid Waste Utility effective January 1, 1998 and subsequently agreed to delay the implementation of the Sewer Utility until appropriate measures to mitigate the impacts on taxpayers could be developed. Staff advised the City Manager by memo on November 3, 1998 suggesting a further delay in the implementation of the Sewer Utility until the year 2000, with a mid year implementation being a probable scenario.

SUMMARY

Currently, costs related to the City's sewer system are funded from the general purposes property tax levy in the Revenue Fund. As a result, taxpayers are paying for both sanitary and storm services based on the assessed value of their properties. This report presents basic fundamentals underlying the creation of a Sewer Utility which would allow the City to remove the costs of operating and maintaining these facilities from the tax levy and to recover the costs instead through direct user charges. An implementation strategy is also proposed that would phase in the financial impacts of this transition.

The City has been working towards implementation of user fees for sewer services for several years. The issue was first raised by the 1989 Municipal Taxation Commission (Leckie Commission) which concluded that the city could benefit by increasing the diversity of its revenue sources and identified a self-funding Sewer Utility as the strongest option for reducing the dependence on property tax. On September 12, 1995, Council approved the creation of a sewer utility and during 1997, the Citizen's Advisory Group on Property Taxation subsequently endorsed the underlying principles and methodology adopted to set rates and to unburden the general purposes tax levy.

There are several advantages to establishing a sewer utility that are noted in this report. Perhaps the most important are:

· that charging costs to users on the basis of consumption of services rather than on the basis of assessment based property taxes brings more equity to the system and provides price signals that would influence consumption of services.
· moving sewer costs from the property tax levy eliminates the shifting of costs among properties as a result of changes in assessed value from year-to-year.

Shifting from an assessment based system to a fee based system would be revenue-neutral for the City as a whole. Unburdening sewer costs from the tax levy at consumption (based on the amount of services consumed) ensures that there are no inter-class shifts of costs. However, moving from an assessment based system to a fee based system based on consumption, lot size and zoning will produce shifts within each property class. These impacts include potential shifts of costs from higher to lower valued properties, from small to larger lots and from those properties with low levels of water consumption to those with higher consumption. The implementation strategy proposed in this report will not see the type of shifts that are primarily driven by lot size.

The most difficult component of the sewer utility to administer is the lot size charge because it is based on the classification, zoning and actual size of each property in the City. This is the preferred approach to billing lot size because it most accurately reflects the impacts properties have on the capital costs of providing both sanitary and storm infrastructure.

However, staff have concluded that, due to the complexity involved and considerable manual intervention of the current tax billing systems likely required, the first phase of implementing the sewer utility include only the consumption portion of sanitary sewer costs. It is recommended that this charge be implemented effective July 1, 2000 with one half of the consumption based costs billed to users through user charges and the balance being collected through the year 2000 property tax levy. Full implementation of the consumption charge would proceed effective January 1, 2001.

PURPOSE

The purpose of this report is to seek confirmation of Council support for a user pay based sewer utility and to seek Council's approval of an implementation strategy that phases in utility charges beginning in 2000.

BACKGROUND

The City has been working towards implementation of user fees for sewer services for several years. For many years, the City has operated its domestic water system as a utility with users paying for the system costs on the basis of consumption. In 1998, Council approved the implementation of a Solid Waste Utility following from the same user pay principles.

The initiative for the development of a sewer utility was first raised by the 1989 Municipal Taxation Commission (the Leckie Commission) which concluded that the City could benefit by increasing the diversity of its revenue sources and identified a self-funding Sewer Utility as the strongest option for reducing the dependence on the property tax levy. Further support came from the Task Force on Property Taxation which presented its report to Council in April, 1994. While discussing options for adjusting the tax burden among property classes, the Task Force identified user fees for sanitation and sewage services as the main alternative to funding these activities through the property tax.

During 1997, the Citizens Advisory Group on Property Taxation (CAGPT) reviewed proposals for both solid waste and sewer utilities and endorsed the underlying principles for the utilities as well as the methodology adopted to set rates and to unburden the general purposes tax levy. The new CAGPT, appointed in early 2000, has reviewed these proposals.

Council has adopted several resolutions related to the implementation of a utility model for sewer services, including the following:

· On September 12, 1995, Council approved the creation of a sewer utility, including establishment of user fees for sanitary and storm sewer based on water consumption and lot size and zoning. Council also approved the way the fees would be applied to properties in the City and a methodology for removing sewer costs from the property tax levy. However, at the time, the Vancouver Charter did not provide for such charges and Council's approval was contingent on legislative changes being approved by the Provincial government.

· On October 7, 1997, Council approved the implementation of a utility for Solid Waste services effective January 1, 1998 and instructed staff to report back on the implementation of the Sewer Utility in mid 1998, including options for mitigatingimpacts on properties in the City resulting from the change from assessment based to consumption based charges. These instructions followed the necessary legislative provisions being put in place to authorize the City to charge for these services outside the property tax levy.

The Solid Waste Utility proceeded on January 1, 1998. Council subsequently agreed to delay the implementation of the sewer utility until appropriate measures to mitigate the impacts on taxpayers could be developed. These impacts arise from the change from an assessment based to a user fee based system of charging for these services and include potential shifts of costs from higher valued to lower valued properties, from small lots to larger lots and from those properties with low levels of water consumption to those with higher consumption. An important component of this report is to identify implementation options that will see these impacts phased in.

The balance of this background section describes the current practice in the City and in other municipalities and outlines the rationale for changing to a utility structure.

1. Rationale for a Utility

A utility is a means of segregating the financial administration of a service such as sewers, to allow more accurate tracking of costs and a more equitable allocation of those costs to users or user groups.

Knowing what the costs are provides the opportunity to recover these costs from users on the basis of their consumption of the services rather than from assessment based property taxes. Charging on the basis of consumption brings more equity to the system of charging for these services. While a perfectly equitable system would mean measuring consumption in ways that would be administratively costly, such as the installation of effluent flow meters on every sewer connection or detailed measurements of the impervious area of each lot, using proxies such as water consumption, lot size and average impervious measures based on property use, can provide reasonable indicators of use for billing purposes.In addition to recovering sewer costs on a more equitable basis, the implementation of user fees for sewer systems offers other advantages:

· a separate charge increases the public's awareness of which services they are receiving from the City and how much they cost to provide.
· fees are more visible to users, are related to actual consumption of the service and can be used to encourage conservation of resources where appropriate.
· changing from an assessment based cost allocation system means that the charge to each property would be more predictable for taxpayers as it would not fluctuate with shifts in assessed values.

The utility would be structured with fees that fully recover the costs of sewer services and would be completely self-sustaining. A reserve would be established, similar to the stabilization reserves included in the water and solid waste utilities, to stabilize rates from year to year and to ensure that subsidies from general revenues (property taxes) would not be required.

Shifting to a fee-based system would be revenue-neutral for the City as a whole. The City would collect no more revenue from users than is currently collected through property taxes. However, some tax-exempt properties would be required to pay for these services for the first time. Properties that are exempt from taxation under the Vancouver Charter are responsible for paying fees and charges for services outside the general purposes property tax. With the implementation of a full sewer utility, it is anticipated that approximately $4.0 million in sewer costs currently charged as part of the property tax levy will now be recovered from exempt properties, including schools, charitable and religious property and from the GVRD, Translink. This additional revenue has been taken into account in calculating sewer fees and effectively reduces the total amount paid for sewer services by existing taxable properties. The treatment of these properties is reviewed later in this report.

2. The City's Current Practice

The total costs related to the City's sewer system in 1999 were approximately $58.6 million, comprised of the following components:

GVS&DD

Total$58.6 million

The cost of the overall system is currently funded from the property tax levy in the Revenue Fund. As a result, taxpayers are paying for both the sanitary and storm services based on the assessed value of their properties.

Most municipalities have separated their sewer systems so that one set of pipes collects sanitary waste and a second set collects storm water. In a separated system, only the sanitary portion must be treated prior to discharge. There are a number of advantages of a separated system. Only the sanitary portion of the flows needs to be treated prior to discharge meaning that less treatment capacity is required. In addition, separated systems allow costs to be identified separately, an important prerequisite to being able to allocate these costs to users.

The Vancouver system is for the most part, a combined system in which sanitary and storm flows are both collected in the same pipe system and are disposed of together through a treatment plant. The combined system therefore requires more treatment capacity and is also subject to surges during heavy rainfall events. The City has recognized the disadvantages of a combined sewer system and is proceeding on a long-term program to separate the components of its system. In the meantime, having a combined system makes it more difficult to determine how the City's total sewer costs should be allocated between sanitary and storm components.

3. Practice in Other Municipalities

A review of the practices of municipalities in the Lower Mainland indicates that Vancouver is the only municipality which has not established a user pay system (a utility) for sanitary sewer services. The review showed a wide variety of methods for charging users for these services, including flat parcel taxes, parcel taxes based on assessed value, consumption based user fees and various combinations of these methods. Most of these municipalities have separated sewer systems so that the costs to be distributed through user fees can be easily calculated. Notable exceptions are New Westminster and Burnaby whose systems are either combined or a mix of combined and separated. Both of these cities have implemented a sanitary sewer utility.

Sanitary sewer utilities are also common among other Canadian and U.S. cities. Staff contacted six cities outside the province and, in each case, these municipalities utilized user fees to pay for sanitary sewer costs. In each case, these cities used water consumption as the basis for allocating costs, this being considered an appropriate proxy for the impact of users on the sewer system. In cities where properties were not metered for water consumption, a flat charge was utilized.

User based charges for storm sewer services are less common among local municipalities. Within the region, only Surrey has implemented a sewer use charge and parcel tax that incorporates a drainage component. The City of North Vancouver has implemented a drainage levy based on the taxable assessment of a property and the District of North Vancouver will be considering options for implementing drainage charges in 2000. All other local area municipalities continue to recover storm sewer costs through property taxes. Outside the province, all of the U.S. cities contacted had implemented storm sewer utilities, and two of the Canadian municipalities were considering doing so. For cities with storm charges in place, the most common base for the charge is lot size with consideration given to the amount of impervious area associated with use (residential, commercial, etc.).

DISCUSSION

The following section reviews the proposed operating and financial structure of the Sewer Utility, including the allocation of costs to the various user groups. This review is based on the full utility model in which 100% of both sanitary and storm costs are allocated to users. A specific implementation methodology involving a phase in of these components and the development of fees is considered later in this report.

PROPOSED STRUCTURE OF THE FULL SEWER UTILITY

1. Operating Principles

The utility would include all sewer costs, including both City and regional costs of operating the sanitary and storm components.

The utility would be self supporting, with non-subsidized user fees based on full cost recovery. The user fees would be based on water consumption, lot size and zoning as acceptable proxies for the impact that each user places on the sewer system.

Operation of the utility would be budgeted for separately from the Operating Budget, although annual operating and debt charge budgets would be established on the same basis. Fees would be subject to annual approval by Council, as is currently the case with water and solid waste fees. Management of the utility, including development of an annual operating plan and fees, would be the responsibility of the General Manager of Engineering Services with concurrence by the Director of Finance. Billing and collection of the fees would be the responsibility of the Revenue Services section of Corporate Services, which now collects water and solid waste fees.

2. Allocation of Sewer Costs to Users

The operating costs and debt charges related to the sewer system were $58.6 million in 1999. The various components of these expenditures were analyzed to determine which portion was attributable to the sanitary and storm sewer systems. This analysis identified sanitary system costs of $36,159,000 (61.7%) and storm system costs of $22,443,000 (38.3%). The overall Sewer Utility cost structure and breakdown into Sanitary and Storm Components is provided in Appendix I (on file in the City Clerk's Office).

a) Sanitary Sewer Costs

Sanitary sewer costs arise from the capital and operating costs of sanitary sewer infrastructure and the costs of providing treatment services. Capital costs are largely a function of lot size, which is reflective of the effort required to install and maintain sewer pipe, and to a lesser extent, a function of sewer volume. Operating costs, including treatment costs, are largely a function of sewage volume and to a lesser extent of lot size. AppendixII presents the allocation of sanitary costs and methodology of determining fees based on these principles.

Consumption charges to all properties would be calculated using 85 % of actual consumption of water reflecting the fact that not all water consumed by properties is discharged to the sewer system. For metered properties the per unit charge will be calculated by dividing 85% of total consumption by the costs allocated to these properties. As is the case with the water utility, minimum monthly charges will apply. For unmetered properties, such as single family homes and duplexes, the charge would consist of a flat fee based on 85% of the consumption by all non metered properties divided by the number of units being billed.

Lot size charges would also apply to all properties based on actual lot sizes held in the City's Geographic Information System. These costs would be allocated to individual properties on the same basis as for allocating storm sewer costs described below.

b) Storm Sewer Costs

Storm sewer fees reflect the cost impact, or potential impact, of each property on the City's storm sewer system. The majority of storm sewer costs are related to the capital costs of providing infrastructure, while only a small amount is related to operating or maintenance costs. Since storm costs would not normally be expected to be processed through treatment facilities, these costs are not attributed to the storm system. As a result, storm sewer costs should be allocated primarily as a function of capital costs. As is the case with sanitary capital costs, lot size is generally considered to be the appropriate proxy.

Storm costs are generally related to surface run off. As a result, the impervious area of each lot can affect the demands placed on the storm sewer system and should be taken into account in allocating costs. As it would be administratively expensive to measure each property, it is common practice to use averages based on property zoning for cost allocation purposes.

The City's storm sewer system is designed based on the City of Vancouver Sewer Design Manual which, in turn, is based on the design standards of other Canadian municipalities. The design guidelines utilize ratios indicating the impervious area on each type of lot that is likely to create storm water run off. Different ratios have been developed for each property based on zoning. Based on this model, staff have identified four categories of properties which are recommended for use in allocating storm sewer costs in the proposed utility. These are:

The cost of providing storm sewers for those properties exempt from sewer charges, such as City streets and parks, are distributed over all other properties proportionately. As with the allocation of lot size costs for sanitary purposes, a 20% cost adjustment was made to the commercial and industrial groups to reflect the extra costs of installing, replacing or repairing sewer infrastructure in these areas.

The impact of these considerations on the allocation of storm sewer costs is summarized in Appendix II.

3. Fee Structure

Implementation of the full sewer utility would result in separate charges for both sanitary and storm uses. The fees would be collected as separate charges on the property tax notice for those properties currently receiving flat rate water services (most single family and duplex residential properties), and as separate charges on a combined sewer and water bill for users with metered water consumption. For these properties, water consumption charges would be calculated on each water bill based on 85% of current consumption, while lot size charges would be billed annually, likely on the first water bill. Appendix III (on file in the City Clerk's Office) contains a detailed summary of the basis for billing and the billing medium for various property types.

There are a variety of special circumstances that will influence the billings to some properties. Appendix IV provides a summary of these.

TAXATION IMPACTS OF A SEWER UTILITY

In September 1995, when considering the implementation of the sewer utility, Council passed the following recommendation:

As a result of this decision, the following impacts of sewer user charges have been identified:

1. The impact of the utility will be revenue neutral

Unburdening the tax levy based on consumption of sewer services will mean that implementation of the sewer utility will not result in any additional funds being collectedoverall and there will be no shifts of costs among the classes of properties. This approach will mean that 72% of sewer costs ($42,193,440) will come off the residential class tax levy to be replaced with an equivalent value of consumption and lot size sewer fees. The balance of the costs ($16,408,560) will be removed from the non residential classes which will be allocated an equivalent amount of sewer fees.

2. Costs Will Shift Among Properties Within Classes

Implementing fees for sewer services on the basis outlined in this report would result in shifts of costs within each class of property because sewer costs would no longer be allocated based on assessed value, but on the basis of the estimated impact of each property on the sewer system. Unburdening the property tax will result in those properties with relatively higher assessed values receiving the largest reductions. The impact of the proposed user fees will fall most heavily on properties which consume the largest amount of water and/or have larger lots.

3. Potential Customer Concerns

In addition to the overall cost impacts of the proposed utility, there are also some potential customer concerns that might arise. As with the establishment of the Solid Waste Utility, a new charge on the tax notice may be perceived as an additional tax rather than a replacement of an existing charge. The shifts in costs among properties in the various classes could add to that concern, especially for those who will see an increase in cost.

There is also the possibility that some property owners will see the application of a flat fee for sewer use as not being equitable. Properties with fewer residents, which do not sprinkle their lawns or which otherwise conserve water will be charged at the same rate as high occupancy properties using more water. Installing water meters in all residential properties would be more equitable, however, there would be significant cost to installing and reading meters that cannot yet be justified on the basis of the costs being distributed by consumption.

A similar argument applies to the calculation of storm sewer costs based on impervious area. Within each of the three property groupings selected, there will be wide discrepancies in the actual amount of impervious area on each lot. The approach taken in the proposed rate structure relies on averaging for each group rather than on measuring the actual impervious area of each property. While this may not be perfectly equitable, it does provide a good proxy and is consistent with the approach taken in designing sewer capacity while at the same time being easy and less costly to administer.

4. Loss of Property Tax Deferrals

Under provisions of the Provincial government's Land Tax Deferment Act, certain propertyowners may, subject to an agreement with the Province, defer all or part of the property tax payable on eligible properties for the term of the agreement. Staff have been advised that the Province's interpretation of this Act is that utility fees are not deferrable since they are not based on assessed value. In these circumstances, property owners who defer their property tax payments will be required to pay sewer charges as they currently do for waterworks and solid waste services.

PHASING THE SEWER UTILITY IMPLEMENTATION

Staff have considered several phasing options for the Sewer Utility in 2000. For each of these options the first viable implementation date is July 1, 2000.

· implementation of a full utility at mid year
· implementation of the full sanitary component at mid year
· implementation of the consumption based sanitary component at mid year

The most difficult component of the sewer utility to administer is the lot size charge because it is based on the classification, zoning and the actual size of each property in the City. This is the preferred approach to billing lot size because it most accurately reflects the impacts properties have on the capital costs of providing both sanitary and storm sewer infrastructure. The complexity involved in billing lot size based on these factors and a conclusion by staff that trying to bill this charge using the current utility and tax billing systems would be cumbersome and involve considerable manual intervention has led to the conclusion that additional work should be done before proceeding.

As a result, it is recommended that the first phase of implementing the utility include only the consumption portion of sanitary sewer costs. It is recommended that this fee be implemented effective July 1, 2000 with one half of the consumption based costs being billed to users through user charges and the balance being collected through the property tax levy. Full implementation of the consumption charge would proceed effective January 1, 2001.

Staff continue to support the lot size component of sewer fees as an appropriate method for distributing costs to users and will report back on timing of and options for implementation of these fees before the end of the year.

1) Property Tax Implications

The implementation of a consumption based sanitary charge will involve the removal of $24.2 million of sewer costs from the property tax levy. With a mid-year implementation, one half of these costs will be removed in 2000 and the balance in 2001. These costs will be unburdened from the tax levy based on consumption, with 65% of sewer costs removed from the residential class to be replaced with an equivalent amount in user fees and thebalance of costs to be removed from non residential classes which would be allocated an equivalent amount of sewer fees.

   

No Utility

With Utility
Half Year

With Utility
Full Year

Residential

Taxes

$155,287,016

$147,371,593

$139,457,157

 

Sewer Fees

  

7,915,423

15,829,859

 

% Tax Reduction

  

(5.1)%

(10.2)%

Non Residential

Taxes

$211,318,524

$207,141,947

$202,964,383

 

Sewer Fees

  

4,176,577

8,354,141

 

% Tax Reduction

  

(2.0)%

(4.0)%

In 2000, the residential tax levy will be reduced by $7.9 million (5.1%) and the non residential tax levy will be reduced by $4.1 million (2.0%), each to be replaced by the equivalent amount in user charges. Further reductions of the same amount will be applied in 2001, again with the equivalent amount in user charges being introduced.

As with the implementation of the full utility described above, partial implementation of the sewer utility will be revenue neutral across property classes, that is there will be no shifting of the costs among the classes. In addition, there will be no shifts of costs associated with lot size. However, there will still be shifts of costs, though less pronounced, among individual properties within classes with these shifts generally being:

· from properties with higher assessed values to those with lower assessed values (reflecting the impact of the tax reduction due to unburdening sanitary consumption costs from the general purposes levy), and
· from properties with lower water consumption to those with higher water consumption.

This follows from the fact that costs will be removed from taxes based on assessed value of properties and added back on the basis of water consumption. Metered and unmetered properties will be affected as follows:

· for residential properties on flat rates for water consumption, the shifts will be driven by property value since each property will be charged the same for sewer use.
· for residential and non residential properties with water meters, the shifts will be driven by both the assessed value and water consumption.

2. Proposed Charges

Based on the allocation of costs identified above, the following rates would apply in the case of a mid year implementation of the consumption based sanitary user charge. These rates are based on 1999 costs and will require upgrading to reflect costs in the year of implementation.

a) Consumption Charges:

Unmetered properties

Metered properties

Cost per Unit of Water*

$0.679

* based on 85% of water consumption volume

With full implementation in 2001, the flat fees will double and charges to metered properties will apply to the full year.

b) Sanitary and Storm Sewer Lot Size Charges - there would be no lot size charges in the initial implementation as these costs would remain in the general property tax.

Table 1 summarizes the changes in costs for three typical residential properties and Table 2 presents similar information for several non residential properties. Table 1 demonstrates that while each residential property sees a 5.1% decrease in their property taxes, the overall percentage change varies due to costs being charged back in the form of a flat sanitary usage charge. Under these circumstances, cost shifts will be driven by property values.

Table 1
Sample Residential Properties - Sanitary Consumption Only /
Mid Year Implementation

Consumption Charge
$57.50
$57.50
$57.50
Assessed Value
$300,000
$500,000
$700,000

Taxes with no Utility
$865.01
$1,441.68
$2,018.35
Taxes with Utility
$821.16
$1,368.60
$1,916.03
Change:
($43.85)
($73.09)
($102.32)

Sanitary Sewer Charge
$57.50
$57.50
$57.50

Taxes & Fees with Utility
$878.66
$1,426.10
$1,973.53
Overall change
$13.65
($15.59)
($44.82)

1.6%
-1.1%
-2.2%

Table 2 demonstrates the complexity involved in the case of non residential properties where costs are driven by both the assessed value and water consumption. For metered properties with higher value and relatively low water consumption, overall costs will decline with user fees. However, as water consumption increases, this savings is quickly offset by rising consumption costs. The most pronounced increases in cost will be with those properties with lower value (receiving a smaller tax reduction) and higher water consumption.

Table 3 below summarizes the changes in costs (impacts) of the implementation proposed in this report on a broader sample of residential and non residential properties. For the purpose of this analysis, the results for single-use properties are presented.

Table 2
Sample Non Residential Properties
Sanitary Consumption Only / Mid Year Implementation

Commercial Properties

Restaurant Properties

Water Consumption (units*)
142.5
48
57.5
543
667
Assessed Value
150000
$395,000
$2,410,000
$285,000
$685,000

Taxes without Utility
$2,234.28
$5,883.60
$35,897.41
$4,245.13
$10,203.21
Taxes with Utility
$2,189.66
$5,766.10
$35,180.51
$4,160.35
$9,999.44
Change:
($44.62)
($117.50)
($716.90)
($84.78)
($203.77)

Sanitary Sewer Fees
$82.31
$27.73
$33.21
$313.65
$385.27

Taxes & Fees with Utility
$2,271.97
$5,793.83
$35,213.72
$4,474.00
$10,384.71
Change:
$37.69
($89.77)
($683.69)
$228.87
$181.51

1.7%
-1.5%
-1.9%
5.4%
1.8%

(* 1 unit = 2,831 litres)

ag000404.htm

Table 34

Sanitary Consumption Only / Mid-Year Implementation

Single Family1

Multi-Family2

Non-Residential3

Impacts
# of Properties

%
# of Properties

%
# of Properties

%

Less than ($500)
4
0.0%
23
0.5%
486
11.8%
Between ($500) and ($400)
13
0.0%
19
0.4%
141
3.4%
Between ($400) and ($300)
35
0.1%
49
1.1%
216
5.2%
Between ($300) and ($200)
241
0.3%
97
2.2%
455
11.0%
Between ($200) and ($100)
1,921
2.8%
147
3.4%
801
19.5%
Between ($100) and $0
28,042
40.4%
1494
34.6%
1,029
25.0%
Between $0 and $100
39,126
56.4%
1367
31.7%
259
6.3%
Between $100 and $200
0
0.0%
403
9.3%
137
3.3%
Between $200 and $300
0
0.0%
192
4.4%
102
2.5%
Between $300 and $400
0
0.0%
155
3.6%
91
2.2%
Between $400 and $500
0
0.0%
94
2.2%
70
1.7%
Greater than $500
0
0.0%
276
6.4%
331
8.0%

Total
69,382

4,316

4,118

The table shows the number of properties that will see changes in their overall tax and utility charges as a result of the implementation. Based on the modeling done to measure the impacts of a mid year implementation in 2000, the following conclusions can be drawn:

1. Residential properties on a flat rate water charge (Single Dwelling):

2. Multi-Family Residential Properties on Metered Water (Non Strata)

3. Non Residential Properties on Metered Water (Class 6 - Commercial)

Multifamily strata properties will generally see the same percentage residential tax reduction to be replaced by an increase in their general strata corporation fees associated with the metered sanitary consumption charge. As such, cost shifts will be influenced by both assessed value and water consumption.

Charts showing the distribution of impacts for the three property types are included in Appendix V (on file in the City Clerk's Office). The charts show the distribution of impacts for the recommended implementation (Sanitary Consumption Only / Mid Year Implementation) and, for comparison purposes, the Full Utility (e.g. both Sanitary and Storm components) / Full Year and Sanitary Consumption Only / Full Year scenarios are also presented.

The analysis presented in this report reflects changes in costs in 1999 as the base year and as a result, does not take into account changes that are associated with the recently approved blending of Class 5 and Class 6 tax rates or the implementation of BOD/TSS/Flow charges. A brief overview of the impact on BOD/TSS/Flow charges is discussed in the following section.

THE IMPACT ON BOD/TSS/FLOW CHARGES

On March 9, 2000, Council approved the implementation of direct charges to several industries in Vancouver that are permitted to discharge large volumes of effluent into the sewer system. The analysis accompanying that report makes the assumption that the change these industries will see is from an assessment based charge to a direct charge. Should Council approve the implementation of a consumption based charge for sanitary sewer, the impacts on these firms will become more complex.

Implementation of a BOD/TSS charge will result in these costs being removed from the sewer utility and recovered instead through a direct charge to permitted industries reflecting their full impact on the regional GVS&DD system sanitary costs. Consumption based sanitary costs would be reduced by this amount, and a separate sanitary charge for permitted industries would be produced which reflects only City of Vancouver costs.

SEWER UTILITY MANAGEMENT REQUIREMENTS

A financial analyst position is recommended to be created to coordinate the implementation of the BOD/TSS/Flow charges to the permitted industries and the staged implementation of the Sewer Utility proposed in this report. On an ongoing basis, this position will be deployed to manage the annual costing/rates structuring of the Sewer Services and address many of the Sewer Services' needs including better utilizing financial/costing information for planning purposes, conducting financial and performance evaluation, support for the billing process and participating in business process improvement initiatives. Staff believe that as the Sewer Service is moving towards a user-pay basis business unit and with increasing financial demand and complexity in the region's sewer costing structure, it is necessary to complement the Sewer Operating unit with a financial analyst position. Annual budget for this position is estimated at $69,600.

Funding to maintain the sewer information management system is also required to address the increasingly diverse information needs on our Sewer Infrastructure System. It is recommended that a $100,000 annual budget be established for data management, computer design and modeling, network support and other essential information management systems to support the Sewer Utility. This recommendation is in accordance with Engineering's strategic plan of evolving with technological changes by moving towards a computerized Sewer information system.

Staff propose that the total budget of $84,800 for 2000 (annual at $169,600) be funded from the Sewer Fees and would therefore not have a financial impact on the City's operating budget.

Staff also propose the addition of one permanent position to start May 2000 (anticipated classification as Clerk 4 ). The estimated budget for this position is $28,800.00 for 2000 ($43,200.00 annually). This position would lead and document the new Sewer Utility billing and duties would include a range of customer service functions, correspondence, account reconciliations, billing and collection activities and data base maintenance of Sewer utility charges. This new position would also be funded from sewer fees.

CONCLUSION

This report presents basic fundamentals underlying the creation of a Sewer Utility which would allow the City to move the costs of operating and maintaining sewer facilities off the general purposes tax levy and to recover the costs instead through direct user charges. There are several advantages to establishing a sewer utility that are noted in this report. Due to the complexity involved and manual intervention required in the current tax system, staff recommend implementation of the consumption based charge for sanitary sewer serviceseffective July 1, 2000, with 50% of the annual costs being distributed as user fees and the balance distributed in the general purposes tax levy.

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APPENDIX II

Allocation of Sanitary and Storm Costs

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APPENDIX IV

SPECIAL BILLING CIRCUMSTANCES

· Vacant properties and those without water or sewer services will pay the full lot sized based charge. This is because the lot size charge is intended to recover the costs of installing and maintaining sewer infrastructure which was designed to service vacant property as well as developed property. Vacant property will also pay the usage based charge for sewage volume, but will receive a 40% reduction in the fee to reflect the fact that they are not currently imposing any operating costs on the sanitary system. The 60% charge reflects the fact that the treatment facilities have already been built with capacity to service them as well.

· Properties with wells or groundwater collection systems used for cooling purposes will be charged a sewage volume fee for discharging into the system. At the discretion of the General Manager for Engineering Services, heavy users may have their sewage volume discharges either estimated by an engineering consultant or they may install a effluent meter to measure discharges for billing purposes.

· Lots that are over one-half acre generally do not impose the same level of costs on the sewer system. As a result, any area over one-half acre will receive a 50% concession on the per square foot lot size charge.

· Properties zoned RA-1 (Limited Agricultural) are a special category because of their large size, low impervious ratios and unique storm and sanitary infrastructure requirements. Properties carrying this zoning will carry a storm charge approximately one-third of that used for residential properties. These properties will still be required to pay the standard usage based fee for sanitary sewage volume unless they are on their own septic system, in which case they will receive the same 40% concession available to vacant properties.

· some properties located adjacent to the waterfront have installed private outfalls for storm water which do not impact on the City sewer system. These properties would be assessed storm user fees at 30% of the full rate to reflect the percentage of the storm drainage system that is comprised of street systems for water run-off.

· Property owned by the Vancouver School Board will not be subject to lot size charges. The rationale for this exemption is that, like City parks, school board property is available for public use. It is anticipated that school property will pay consumption based fees.

· there are some users with high water consumption that do not have a corresponding impact on the sewer system. For example, companies using water as an input in a production process (e.g. brewery) or those that use water for irrigation purposes (e.g.golf course)may not discharge 85% of its full consumption into the system. Thoseusers who consider that the volume of sewage output differs significantly from their water consumption may make a written request for a review of their sewage volume output. At the discretion of the General Manager of Engineering Services, these companies can either provide a report from an engineering consultant to justify a reduction or they may install a sewage effluent meter or second water meter to determine actual sewer discharges.

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